When It Makes Sense To Seek A Third-Party Opinion

Today's 3PLs provide more than warehousing services

August 4, 2011

STATUS REPORT: TECHNOLOGY

KICKER: OUTSOURCING TRENDS

Third-party logistics providers have always been regarded as viable sources for warehousing services. But many of them are equally well-versed in the strategy behind these services—including the art and science of warehouse site selection. In fact, according to David Frentzel, of Scottsdale, AZ-based APL Logistics, there are several reasons why a 3PL’s expertise could be one of the best real estate deals available to companies today.

Cost-effective technologies: If your company is unable to allocate funds for the sophisticated optimization and simulation tools that make warehousing site selection so precise, consider this: By using a 3PL your company often can enjoy the benefits of these tools without having to make a substantial capital investment. Just as important, it will gain access to the kinds of highly qualified personnel—usually career engineers with graduate degrees—who understand how to employ these technologies to their full advantage.

Increased negotiating power: Almost every industry has its version of a volume discount or preferred customer status, and logistics real estate is no exception. A 3PL that’s involved in dozens or hundreds of distribution center real estate transactions each year may be able to give your company additional clout during warehousing price or lease negotiations. It also will be able to tell you which kinds of items in a contract are, indeed, negotiable—and which are best left intact, even in a buyer’s and renter’s market.

Fewer contractual surprises: When it comes to “small” things like facility maintenance, there are many ways companies inadvertently can sign on for bigger expenses than they should—and 3PLs’ real estate specialists (who deal with warehousing landlords all the time) are especially adept at spotting them.

For example, some of these specialists advocate doing common area maintenance reconciliations quite frequently, because this is an area where unexpected additional charges can add up to hundreds of thousands of dollars. Ultimately their familiarity with these nuances could prevent your company from taking a serious financial hit.

International insight: There’s a big difference between opening a new distribution center in a place like India and opening one in a place like Indiana—and no one knows it better than the 3PLs who already operate overseas. If your company needs to establish an international DC, then a global 3PL’s ground-level, reality-based view of a particular market could be your passport to a considerably faster, smoother startup.

Among other things, you can get practical advice about: the merits of one international city (or part of that city) over another, labor availability, local regulations, the condition of various transportation arteries and the availability of viable distribution real estate in that country for your company’s needs.

Big-picture design expertise:In this age of globalization, it’s not unusual for a highly attractive manufacturing venue to have some serious logistical drawbacks (including longer transit times, more hand-offs and higher overall transportation expense).

Should your company wind up having to work with a less-than-ideal warehousing venue or facility as a result of a strategic production decision, there is much that a 3PL can do to help you make the best of it, including designing the ideal inbound and outbound flow to minimize delivery volatility, and offering you a reality check about what kinds of facility attributes it is—and isn’t—possible to find in certain markets. It also can provide you with a realistic landed cost calculation that will help you manage expectations with your key stakeholders.

Facility flexibility: There are times when it makes sense to operate out of your own facilities. There are others—such as new product launches, seasonal marketing pushes, moves to new markets and the need to fulfill complicated value-added service requirements—when it makes equal sense to employ someone else’s.

By allowing a 3PL to help with site selection, your company can get its foot in the door of many state-of-the-art, strategically located public warehousing facilities throughout North America and beyond. In some cases, the 3PL might even be willing to build that door for you by providing a build-to-suit or redesigned distribution center. In addition, your company can focus more of its time on its core competencies and retain the flexibility to shift its inventory to other operations as its marketing, manufacturing and fiscal needs change.